InvestorQ : Has the government raised the provident tax-free limit from the Union Budget announcement of Rs.2.50 lakhs?
diksha shah made post

Has the government raised the provident tax-free limit from the Union Budget announcement of Rs.2.50 lakhs?

Answer
image
sarah Leo answered.
4 weeks ago
Follow

You are absolutely, the limit has been raised, but it has been raised with certain caveats. You would recollect that in the Union Budget 2021, Finance Minister Nirmala Sitharaman had announced setting an initial threshold of Rs.2.50 lakhs for tax-free PF interest. That means interest on PF would be only tax-free to the tune of Rs.2.50 lakhs of contribution per year. If contribution was more than that, interest would be taxed as other income.

Now, the government has upped the limit from Rs.2.50 lakhs to Rs.5 lakhs. However, there is a small caveat here. This new limit would only be applicable to those cases where no contribution is made by the employer. That means, contributory provident funds where both the employer and the employee are contributing will not be eligible for such higher limit benefits. For such persons, the old limit of Rs.2.50 lakhs will still be applicable.

In case, there is no employer contribution, then the limit will stand automatically enhanced to Rs.5.00 lakhs and interest will be taxed only if annual contribution to PF is above Rs.5 lakhs. In her budget speech, the FM had emphasized that the PF rule would only impact 1% of provident fund holders. One observation made by the FM was that a large number of HNIs and high income earners were using the PF just to earn hefty tax-free income.

0 Views